The former outcome is that envisioned by the theoreticians that lead the
Fed: According to this plot, by driving rates to historical lows along the
entire length of the yield curve, investors will rebalance their portfolios
and reach out to riskier assets, providing the financial wherewithal for
businesses to increase capital expenditures and reengage workers, expand
payrolls and regenerate consumption. Rising prices of bonds, stocks and
other financial instruments will bolster consumer confidence. The
CliffsNotes account of this play has the widely heralded “wealth effect”
paving the way for economic expansion, thus saving the day.

The latter outcome posits that the wealth effect is limited, for two
possible reasons. One is that our continued purchases of Treasuries are
having decreasing effects on private borrowing costs, given how low
long-term Treasury rates already are. Another is that the uncertainty
resulting from fiscal tomfoolery is a serious obstacle to restoring full
employment. Until job creators are properly incentivized by fiscal and
regulatory policy to harness the cheap and abundant money we at the Fed have
engineered, these funds will predominantly benefit those with the means to
speculate, tilling the fields of finance for returns that are enabled by
historically low rates but do not readily result in job expansion. Cheap
capital inures to the benefit of the Warren Buffetts, who can discount lower
hurdle rates to achieve their investors’ expectations, accumulating holdings
without necessarily expanding employment or the wealth of the overall
economy.

Is it just me, or is Fisher being explicitly derisive about the wealth
effect? And when did we start lumping all the channels of monetary policy into
the "wealth effect"? The wealth effect is but one channel of monetary policy.
See something like this graphic from Frederick Mishkin's money and banking
textbook:

While equity prices do operate through a number of channels, only one of
those is the "wealth effect." To his credit, Fisher has a more sophisticated
view of those channels
than Feldstein, who appears to limit the impact of QE to the strict
definition of the wealth effect:

That drives up the price of equities, leading to more consumer spending.

But even if Fisher does see the bigger picture, should he really be lumping
together all the channels of monetary policy into the "wealth effect?" Doing so
only feeds the bias against monetary easing by perpetuating the view it is about
nothing more than creating an artificial boost of equity prices and benefiting
speculators rather than stimulating the economy via a number of channels that
subsequently enhance the profitability of firms and thus raises equity prices.

Of course, Fisher and Feldstein are deliberately trying to perpetuate a bias
against quantitative easing. And even after all these years, I still find it
odd that Fisher appears to believe his job is to undermine the institution that
provides his employment.

The former outcome is that envisioned by the theoreticians that lead the
Fed: According to this plot, by driving rates to historical lows along the
entire length of the yield curve, investors will rebalance their portfolios
and reach out to riskier assets, providing the financial wherewithal for
businesses to increase capital expenditures and reengage workers, expand
payrolls and regenerate consumption. Rising prices of bonds, stocks and
other financial instruments will bolster consumer confidence. The
CliffsNotes account of this play has the widely heralded “wealth effect”
paving the way for economic expansion, thus saving the day.

The latter outcome posits that the wealth effect is limited, for two
possible reasons. One is that our continued purchases of Treasuries are
having decreasing effects on private borrowing costs, given how low
long-term Treasury rates already are. Another is that the uncertainty
resulting from fiscal tomfoolery is a serious obstacle to restoring full
employment. Until job creators are properly incentivized by fiscal and
regulatory policy to harness the cheap and abundant money we at the Fed have
engineered, these funds will predominantly benefit those with the means to
speculate, tilling the fields of finance for returns that are enabled by
historically low rates but do not readily result in job expansion. Cheap
capital inures to the benefit of the Warren Buffetts, who can discount lower
hurdle rates to achieve their investors’ expectations, accumulating holdings
without necessarily expanding employment or the wealth of the overall
economy.

Is it just me, or is Fisher being explicitly derisive about the wealth
effect? And when did we start lumping all the channels of monetary policy into
the "wealth effect"? The wealth effect is but one channel of monetary policy.
See something like this graphic from Frederick Mishkin's money and banking
textbook:

While equity prices do operate through a number of channels, only one of
those is the "wealth effect." To his credit, Fisher has a more sophisticated
view of those channels
than Feldstein, who appears to limit the impact of QE to the strict
definition of the wealth effect:

That drives up the price of equities, leading to more consumer spending.

But even if Fisher does see the bigger picture, should he really be lumping
together all the channels of monetary policy into the "wealth effect?" Doing so
only feeds the bias against monetary easing by perpetuating the view it is about
nothing more than creating an artificial boost of equity prices and benefiting
speculators rather than stimulating the economy via a number of channels that
subsequently enhance the profitability of firms and thus raises equity prices.

Of course, Fisher and Feldstein are deliberately trying to perpetuate a bias
against quantitative easing. And even after all these years, I still find it
odd that Fisher appears to believe his job is to undermine the institution that
provides his employment.